Bunnings processes laid bare as supermarket inquiry hears Coles, Woolworths duopoly allowed to grow unchecked
A plant grower has told senators Bunnings needs to be included in a mandatory code of conduct, after the retail giant almost destroyed her marriage.
A nursery manager who dealt with Bunnings for more than 10 years has told senators how her marriage and business deteriorated due to the superstore’s practices which made them “slaves”.
Karen Brock, who runs Brockland Nursery in Tasmania with her husband, appeared before the Senate select committee on supermarket prices on Thursday, where she “begged” for the government to mandate accountability to protect other growers from her “journey of 1000 cuts”.
Craig Emerson, who is assessing whether the Food and Grocery Code of Conduct should be mandated, this week suggested Bunnings’ nursery division could be brought under a compulsory version given the industry estimates the chain controls 70 per cent of the retail horticulture market.
Bunnings denies this, and estimates that to be more like 25 per cent.
Dr Emerson suggested broadening the code could risk “unintended consequences”, which Bunnings agreed with.
“The characteristics of the industry sector that Bunnings is a part of is both diverse and structurally different to many other sectors including pharmacy, supermarket and others,” a Bunnings spokesman said on Wednesday.
A day later, Ms Brock told senators something had to change, recounting that during her 13 years of supplying Bunnings, the chain had encouraged oversupply.
Ms Brock said Bunnings had consistently purchased high volumes of plants from them, but had never given them a contractual commitment.
“What this meant in practice was that we were encouraged by Bunnings to grow huge volumes of plants while they reserved the right to buy only some – or none – of these,” she told senators.
“At the peak of our business with Bunnings, 95 per cent of the plants we produced were set aside for Bunnings – but without any certainty at all.
“This was a huge source of worry for us: if Bunnings didn’t buy the plants we had grown for them, there was nowhere else for us to sell them.”
In a written statement, she said Bunnings had pressured the nursery to invest in costly plantings without any guarantee the stores would stock them on an ongoing basis.
She said Bunnings had refused to give them minimum trading terms, a contract, or any price increase at all, and that things got so bad she had sent her husband away in order to save their marriage and business.
“My husband for over 10 years was working from 4.30 every morning until 11 at night, seven days a week,” she said.
“His temper would get incredibly short, his skin tone changed to the colour of concrete. I was so concerned about my marriage I sent him to Kyrgyzstan.
“It was the only way to get him away from the situation and then come back with a fresh view.
“It’s a pretty long way to send your husband to save your marriage and your business.”
She said they were “slaves” to Bunnings until the nursery took the “huge risk” to stop supplying to the chain after 13 years.
“It was a huge gamble to break from Bunnings: in our 50s we were effectively starting again. But we don’t regret it: it saved our mental health, our livelihood and our marriage.”
She begged senators to include Bunnings in their crackdown on supermarket regulation.
“Just like fruit and vegetables, greenlife products are perishable: they require time and skill to grow and must be sold in high volumes to be profitable,” she said.
“Government-mandated accountability is the only way Bunnings will do the right thing for the growers they rely on to put plants in their stores, for the benefit of home gardeners everywhere.”
In a statement, Bunnings managing director Mike Schneider said supplier partnerships were “incredibly important” to the company.
“We were concerned to hear the accounts of two former suppliers today and that they believe we let them down,” he said.
“We were hearing some claims for the first time today. Some are quite historical and others are not aligned to the information we have to hand.
“They’re absolutely at odds with the way we believe we do business and look forward to responding to these more formally in due course.”
Mr Schneider said he was confident the two accounts did not reflect the views of the vast majority of Bunnings’ 220 greenlife suppliers.
“However, we know we don’t always get it right and if we let a supplier down, we act as quickly as we can to remedy it,” he said.
Big problem with Aussie supermarkets
Earlier, a major think tank told senators Australia’s supermarket sector has been “getting worse for the last 20 years” and needs competition intervention.
The Australia Institute said the duopoly of Coles and Woolworths had been allowed to grow unchecked, resulting in higher prices for consumers and bigger profits for those supermarkets.
Economist Matt Grudnoff said the institute’s research found that Australia was “a bit of an anomaly” in that the supermarket sector was more concentrated in comparison to the US, the UK and Europe.
They said Coles and Woolworths were earning “about $1bn more than if their product margins were the same as they were in 2018”.
“That is because their margins are higher, even accounting for all of their increased costs and all of the other disruptions, they’re earning substantially more than a billion dollars more than they would if they’d had the same margin as 2018,” Mr Grudnoff said.
Asked if “price gouging” was a fair way to describe it, Mr Grudnoff said “yes”.
The hearing comes days after former Labor competition minister Craig Emerson, who’s been tasked with reviewing the supermarkets’ code of conduct, handed down an interim report to the government that recommended the code be made mandatory.
Dr Emerson did not recommend divestiture powers – championed by The Greens and The Nationals – that could force the break-up of big supermarket chains, describing it as “too heavy handed”.
The think tank said such laws would be a “good idea”.
“The ACCC as it currently stands has very few powers to actually inject competition into a market that is already low in competition,” he said.
“If you can break up the major competitors, you can actually inject more competition in the market. What the ACCC has at the moment really are regulatory powers.
“And I think they need further beefing up … Competition benefits consumers.”
Mr Grudnoff said divestiture was a way of “reducing government regulation”.
Woolies, Coles accused of stifling rivals
The chief executive of one of Australia’s small retailers had earlier blasted the supermarket giants Coles and Woolworths for actively stifling competition.
Executives from Metcash, which sells food and groceries through multiple retailers including IGA and Ritchies, as well as hardware seller Mitre 10, have fronted the senate inquiry on Thursday morning.
In his opening statement, chief executive Grant Ramage accused the two major supermarket chains of buying up smaller, independent stores at “significantly inflated prices” to halt competition – otherwise known as land banking.
He said competition laws in Australia had failed to check the major chains market power and agreed with allegations that Coles and Woolworths were both “deliberately engaging” in the real estate scheme.
“Their sheer scale gives them the financial capability to do that. It gives them greater sway with developers, landlords and other parties, like state governments,” Mr Ramage said.
Land banking involves buying strategic parcels of land, which they may not develop, to stop rivals accessing the area.
Mr Ramage said because it was not illegal there was no compulsion for the duopoly to divulge when they acquired land or property under particular circumstances to the ACCC.
“It’s not a question if they are breaking the laws today – our submission is that the law should be strengthened,” he told the inquiry.
Mr Ramage said land banking occurred mostly “under the radar” forcing independent buyers to step in and outbid inflated price offers made by larger supermarkets.
“It’s a decapitation strategy,” Mr Ramage told the senators.
He agreed that merger reform and greater choices for shoppers could drive down inflated food prices, but said that a tougher grocery code wouldn’t bring any relief in the short term for customers.
“There is a strong future for independent supermarkets but there is also a greater risk in that and that is why we are calling for greater protection and a fairer go for independent supermarkets,” he said.
What’s happening?
Smaller players in the $135bn supermarket and liquor industry, Aldi, Metcash and Endeavour, faced questions about how they set prices and use their market power when dealing with suppliers.
The Greens-led senate inquiry has been tasked with examining the price-setting and competition practices of Australia’s two major supermarket chains Woolworths and Coles amid allegations of corporate profiteering and price gouging of both consumers and suppliers.
It comes as households continue to buckle under the pressure of interest rate rises, rising rents, and higher mortgage payments.
The inquiry is scrutinising the impact of market concentration on food prices and the pattern of pricing strategies employed by the supermarket “duopoly” of Coles and Woolworths.
The dominance of the two supermarket chains, which control two-thirds of the market, will be placed on full show next Tuesday when executives from both chains front senators.
Why Aldi isn’t in Tasmania
First up in the firing line for Thursday’s session was German-owned chain Aldi, which has about a 10 per cent market share and launched in Australia in 2001.
Greens senator Nick McKim kicked off questions by asking if the significant market power of Woolworths and Coles had made it difficult for Aldi to enter the Australian market.
Ms McGrath said opening in Australia in 2001, Aldi had invested $7bn to establish 600 stores but said there was “definitely” an element of capital needed to be successful.
Asked why there were no Aldi stores in Tasmania, Ms McGrath said zoning difficulties had made traditional catchments in major cities “difficult”.
She denied suggestions that Woolworths and Coles were buying up stores and land to hinder rivals from expanding elsewhere.
“The answer is it’s more complex and in Tasmania, far north Queensland, the distance and complexities of the supply chain make it less easy,” Ms McGrath said.
She said Aldi had no plans to open stores in Tasmania anytime soon and that the retailer had plans to make changes to its supply chain on the east coast.
Senator McKim said Tasmanians would be “disappointed” to hear that.
Tasmania has the highest average poverty rate of all Australian states, at 13 per cent.
According to Ms McGrath, about 97 per cent of fresh produce sold in Aldi stores is sourced from local producers in Australia.
Senators quizzed the Aldi executives about allegations that fresh food producers were not receiving pay increases to their contracts with major suppliers.
It came after a NSW apple farmer told a hearing in March that he had not received a price increase for his products in more than 10 years – despite his labour costs rising by over 50 per cent.
Aldi Managing Director of National Buying Jordan Lack said the chain regularly reviews its contracts with suppliers.
“Because we have a time period on that contract that instigates a cost review,” he said.
Aldi not supportive of breaking up Coles, Woolies
Ms McGrath said the supermarket chain did not back the introduction of divestiture laws due to fears it could lead to “unintended consequences”, such as higher prices for customers.
She could not provide any evidence to support this statement.
The idea to roll out powers to break up large supermarket chains was knocked back by Dr Emerson in his interim grocery report, released on Monday.
Earlier, Liberal senator Maria Kovacic asked if Aldi would support greater transparency around unit pricing and a beefed-up growth code of conduct.
More Coverage
Under new rules, grocery giants would have to follow a mandatory industry code of conduct when dealing with suppliers or face hefty financial penalties.
The Aldi boss said the chain was “supportive” of a mandatory code and being more clear to customers about price fluctuations.
Ms McGrath could not answer if Australian Aldi stores had a higher profit margin than its overseas stores.
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